Singapore companies need to strike a balance when cutting wages, even as they aim to retain as many of their staff as possible.

Member of Parliament Foo Mee Har asked about the impact of wages cuts, given the National Wages Council (NWC) guideline released in Oct. 2020 calling for employers to consider cutting wages in order to minimise retrenchments.

In her reply, Teo said the wage adjustments are expected to vary across the various firms and sectors, and those who have not seen a drop in demand are not expected to cut wages. Added Teo:

"A key principle is for management to take the lead in taking wage cuts, and to accept steeper cuts than what they ask of their workers.

Employers will also be mindful that unwarranted wage cuts will make them less attractive to their workers, and they will risk losing talent."

Concerns that wage-cut guidelines may be too broad

In a follow-up question, Foo expressed her concern that the guideline issued by the NWC may be too broad and too much is left to the discretion of the businesses themselves.

This might have a "signalling effect" where there may be more wage cuts than is necessary, or exploited by "opportunistic" firms.

"I would like to ask the Minister to consider putting in place a set of transparent indicators to guide wage adjustment rather than leave it so broad and at the discretion of the business," said Foo.

In response, Teo said while she appreciated Foo's concerns of the guidelines being too broad, the NWC also had to consider the opposite of having overly-narrow and prescriptive guidelines.

Six principles better than sectoral guidelines

Teo explained the NWC deliberated and found that even sectoral guidelines would be too narrow, citing the example of the logistics sector, which includes both high-performing e-commerce and low-performing hospitality companies during the pandemic.

Because of this, the NWC opted to have a set of six principles instead:

1. Use the flexible wage system.
2. If there are employers not using the flexible wage system, any adjustments made to wages should constitute a new variable component in the pay structure.
3. Management should take earlier and deeper wage cuts.
4. Employers that already pay annual wage supplements should continue to do so.
5. When deciding to implement wage cuts, employers should take into account sector performance and government assistance.
6. Wage adjustments should be negotiated and agreed upon between the employer and employee.

Teo added that the tripartite partners were involved in this discussion, and came up with guidelines they felt were reasonable and could operate on this basis, including the unions.

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Top image from Josephine Teo's Facebook page.